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…and so on.

The same, continued…

[Update: I wrote this right before bed last night, and I thought of a couple of things I wanted to add to this post this morning. Rather than write a whole new post, I decided to just put them in brackets.]

The last post pertained to a comment I made on a friend’s post back on the ‘book. That comment got a reply from a friend of mine that I cannot resist responding to here, because it is for this exact purpose that I started this blog in the first place. One of the larger problems with Facebook is that it allows for a kind of immediate back and forth that, while immensely gratifying, and good for quickly generating a discussion, it can sometimes constrain deeper considerations. The other thing is that, on Facebook, its all very personal. I don’t want to say “Hey, I have really serious problems with your view of economics” in the same place I’m going to say “Hey, I really appreciate this picture of your family, and I can’t wait to see you all soon.” Because I really do want to see them all, and enjoy their company, and we can all just skip the politics and economic history that day – spending time with the people you care about is sometimes more important than nuanced policy discussion.

On the other hand, that day is sometime in the future, and this is my blog, where I get to discuss the stuff I want to discuss, in the way I want to discuss it. So I’m going to go ahead and say what I think about some stuff that happened on ye olde ‘book, but I’ll leave out the names. If folks want to respond here, that’s fine, or they can respond somewhere else, or not at all, or whatever.

So, the basic idea behind my last post was that the Federal Government, if it wanted to, could think up useful things for folks to do, and then pay them to do those things. It would, of course, have to decide that the democratic way, where legislators get together and vote to do all that, which is unlikely, because paying people would mean either raising taxes or by taking on debt, and those are both extremely unpopular with voters. And you would also need an executive branch willing to carry out such a program, and a judiciary willing not declare such a program unconstitutional when the inevitable backlash from private business takes the Federal government to court. Back when FDR launched the National Recovery Administration, during his first term as President, this is precisely what happened – the Supreme Court ruled that the NRA was unconstitutional, with Justice Brandeis declaring that the era of centralization was over! But I wasn’t trying to lay out any sort of serious program, I was just writing for the sheer joy of not being totally pessimistic for a little while.

Meanwhile, back on the ‘book, this friend of mine (who, I can assure you, will be totally, utterly unconvinced by everything I’m about to say, regardless of evidence or logic, because he will never accept the idea that the government should be allowed to make decisions contradicting the interests of private businesses, since to do so would violate the principle of individual liberty) [Does that seem harsh? Keep in mind he would likely dismiss what follows as a Marxist rant, and he wouldn’t be wrong.] comes in with the Mike Rowe argument. This is basically an argument for structural unemployment (and if you’re interested, here’s Dean Baker debunking that argument) – the idea that there is a mismatch between the skills currently possessed by the workforce, and the jobs currently available on the market. Krugman has blogged about this as “humbug” for years. Mike Rowe is an entertainer, and he has a show called “Dirty Jobs” where he propagates the myth that we just need to have greater respect for difficult, physical jobs that don’t necessarily require college degrees. Personally, I would like to see Rowe try being a truck stop stripper, like a couple of reporters from Vice did, and made a documentary about. Now that is a dirty job. But you won’t see Mike Rowe stripping for truckers, because that’s demeaning. And his whole image is caught up in the idea of the noble blue collar worker.

Mike Rowe makes a television program, and people watch it, because they like watching a guy present the idea of the noble blue collar worker. And that’s fine. He has a foundation that helps retrain people, and that’s fine too. But it is not a solution to unemployment, or the indignities of inadequate compensation. It’s a solution to the guilt upper-middle class people feel when they hear about their blue collar cousins losing their jobs, or having to work dead end service jobs for minimum wage without benefits. They want to help, they want their friends to have dignity in work, and health benefits and so on. They just don’t want to rock the boat to do it.

To understand why this is the case, one might consider an essay by Polish economist Michael Kalecki written in 1943. “The reasons for the opposition of the ‘industrial leaders’ to full employment achieved by government spending may be subdivided into three categories: (i) dislike of government interference in the problem of employment as such; (ii) dislike of the direction of government spending (public investment and subsidizing consumption); (iii) dislike of the social and political changes resulting from the maintenance of full employment.” This is still more or less the situation today. If people could just vote for a government that would enact full employment policy, business leaders would lose their position of power and influence in society. And they aren’t especially interested in that, so they do whatever they can to prevent it. In Europe Union, this is actually a central part of the problem – as Yanis Varoufakis writes in an article published a few days ago “although European countries remained democratic, the EU institutions, where sovereignty over crucial decisions was transferred, have remained democracy-free. As Margaret Thatcher explained during her last Parliamentary appearance as British Prime Minister, who controls money and interest rates controls the politics of Europe.”

[This is not to say that there isn’t some validity to the observation that there has been a notable decline in blue collar jobs over the last 30 years. Let’s look at some charts!

In this first chart, you can see clearly that there has been a decline in manufacturing employment over the last 30 years. I added construction and government employment for comparison – note that while both have risen modestly, so has the total population. Moreover, note that the Obama administration did not create a huge new raft of government jobs. If anything, the last 8 years have seen a slight depression in government employment. But the point is that the manufacturing sector has seen considerable job loss in the last 30 years.

Our second chart looks at median incomes in the same time period. This is median income for all employment in the US, adjusted for inflation. Please note that it tops out at the end of the ’90s before hitting a choppy decline. So we can say that that, as blue collar jobs have declined, so too has income for many of those workers.

Our third chart shows the wage share of GDP, which has fallen steadily since 1970. If you work for a living, your share of the economy has been in decline for over 40 years. Does this mean that we need, as Mike Rowe suggests, more respect for blue collar workers? No! It means we ought to pay them more. Can the government implement policy to that effect? Yes! It can! But it hasn’t.

Lastly, I wanted to throw in this delightful chart from a Jacobin article written by a former professor of mine, JW Mason. Notice how the labor force participation rate seems to want to readjust to a level similar to that of 1999 levels. Why is that? My theory is that its because that’s closer to a level Americans are comfortable with, i.e. they feel like the economy is too big. We (and I use that word advisedly) want to go back to a simpler time, when there weren’t as many immigrants.]

Besides all that, my friend mentions the role of private funding in the arts. I see that role traipsing across the stage at Chicago’s Lyric Opera, and in the pages of their programs, with their long lists of generous donors. And I’m all down with people supporting the arts. But the thing is that public funding is actually way more important than the private donations supporting individual programs. Public K-12 schools have seen arts funding cut over the last 20 years, and although the present financial outlook for public arts funding is “modestly positive,” according to a 2014 report from Grantsmakers in the Arts it is worth noting that, should the Federal budget become smaller (Hello, Paul Ryan!) , this would have a direct impact on arts and arts education.

Another friend, who also got into the discussion, and made a comment that he is surprised to find himself to my left (I’m as surprised as he is?), suggested the possibility of modest tax reforms and an expansion of Civilian Conservation Corps style programs. Which seem pretty realistic – but again, I wasn’t being realistic at all. I don’t think the government will actually make a list of useful work that needs to get done, and then pay people to do that work. Its not what voters want. What voters seem to want right now is something that looks and sounds like Donald Trump, whatever that means.

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6 comments

AE
· February 25, 2016

The real issue I have with government employment is the sustainability of massive government employment. While providing value for the tax dollars in the forms of infrastructure delivered and people employed, you end up with a negative net sum game. Sustainability on delivering a service requires your inbound cash flow to meet or exceed your outbound. Any service that doesn’t do that has a shelf life as the resources to maintain it eventually dry up.

The only way a program could succeed is if the government program operated as an income producing arm and was discontinued if it failed to generate. However, if such a profitable market existed, how come a private entity has not cashed in on it? Either the market is too big to be fulfilled, or it is not profitable enough to pursue. Assuming that it is the latter, not the former, then government would have to price and position itself in an unprofitable way to drive the consumption of the service. Sustaining an unprofitable operation you need an influx of capital to keep it running, such as taxes.

I’d readily agree that we’ve used government in the capacity to stimulate a market where the business model was too risky for private enterprise to eat the startup and build the demand. Case in point is the USPS. Using them as the poster child also demonstrates the risk as the USPS is in serious need of being reevaluated to return to sustainability.

The larger the scale of the government employment, the higher the risk of the snake eating its tail. Sustainability supported by taxes only works when you are getting enough tax income from people you don’t employ to offset your losses. At some point the scales shift to where there is not enough taxable income outside of the government employees to sustain paying those in the government. You can’t tax enough of a dollar when you have to pay out a full dollar on the other side.

If you think of the government as a business – more precisely, as a firm motivated by profits and subject to market forces – then that would make sense. But the Federal government is not such a firm, because it can and does print money.

Any other entity performing that action would be considered to be unethical practices. We condemn China for purposefully devaluing their currency today. One would think we’d hold our government to a higher standard, if not the same standard we hold for private enterprise.

Additionally, Government is absolutely subject to market forces, it just has different tools to react to them.

Profits are the path to growth and sustainability and if the government truly wants to encourage economic growth and create sustainability than it has a vested interest in the private enterprise and citizens it governs to produce a value above the cost of effort. While it is very easy to label those seeking profits as “greedy”, it is a very black and white approach to the reality that those who are looking to build their business aren’t doing it for the sake of growth. They are doing it because if they don’t they will slowly erode their sustainability in the form of people moving to higher paying jobs, customers moving to more innovative products, and becoming an irrelevant solution.

I can agree that government isn’t a business, I can’t agree that by operating without regard to fiscal responsibility on the attitude that it can just print money is reckless and puts us all at risk.

I think the irreducible gap between our views is the definition of “fiscal responsibility.” We aren’t going to agree on that, and that’s okay.

A couple of brief points: 1) profits are market signals, not pathways to growth; 2) China’s monetary policy is not unethical, it makes good sense from the point of view of the Chinese government; and 3) the market is not a spontaneous order, it’s a deliberate social institution that we can and do control, whether or not we choose to recognize that.

In addition to Sam’s point regarding the issues with treating the government as if it were business, I don’t think what he is advocating is necessarily an increase in government employment, just spending. I can see many arguments for where we may need to work on improving the efficiency of the government and how it spends (i.e. ensuring that it builds something with a clear future value, and that the spending goes to groups and sectors where it is most likely to cycle readily back into the economy), but I haven’t seen much evidence showing that government spending is going to lead us into the dreaded fiscal disaster that many folks see impending.

I think that more hiring by government would be fine, but that can occur at the local and state levels, as well as the Federal level. Moreover, direct hiring by government is not the only way in which the government could provide useful investment in the economy. The broader point about fiscal policy is right on point, though. The US Federal government has a unique fiscal position in the world – and it could use that position to benefit society a great deal more than it is presently. If that was what voters wanted, in cooperation through constitutional democracy, to happen.